LONDON (AFX) - The euro was steady to a touch higher against most leading currencies in midday trade but participants' sentiment towards the single European currency remain downbeat, dealers said.
They added that bearish comments from a couple of the EU finance ministers, namely Austria and Belgium, who seemed to be ruling out central bank intervention, initially weighed on the currency.
Ian Stannard, strategist at BNP Paribas, said: "The European Central Bank is obviously on an easing track, and even though they are still very reluctant to be so, it would be strange for them to try to strengthen the euro at this stage."
He added: "I wouldn't expect the euro's bounce to be sustainable. The euro is still in quite a weak position... the 0.8330 usd will be my next target on the downside."
Dealers said that current option targets around the 0.84 usd area could be protecting the unit, but at the same time be a tempting target later in the day.
Looking further afield, the European Central Bank governing council is meeting on Thursday and, while the outcome for interest rates is hardly predictable, players predict a no-change this time round and a 25 basis point by June 21.
Today's euro zone's economic releases only served to underline the weak outlook within Europe, Stannard said.
The euro zone economic sentiment indicator fell for the fifth consecutive month 0.4 points to 101.7 in May from 102.1 in April, while industrial producer prices rose 0.3 pct in April from the previous month, giving a 4.1 pct year-on-year rise.
Meanwhile strategists were of the opinion that dollar/yen was starting to bottom out after bearish comments by Japanese officials should underline the weak outlook in the Japanese economy. "We are looking for a break above the 120.00 area to trigger a move up to the 122.00 area by the end of this week," Stannard said.
Sterling slipped to new year low of 1.4070 against the dollar. Dealers said the next support stands at 1.4059, while the 16 year low lies at 1.3951.
"There have been big portfolio outflows from the UK, heading towards the U.S. corporate bonds," Stannard said.
The UK Chartered Institute of Purchasing and Supply reported that its service sector Business Activity index rose to a seasonally adjusted 52.0 in May from an unrevised 51.2 the previous month. Economists said that the weakness in the export and manufacturing sectors driven by a slowing European economy and a strong sterling has kept the door open to further rate cuts.
However, the majority believe that this week is unlikely to see a pre-election rate cut by the Bank of England's Monetary Policy Committee at Wednesday's meeting.
"It looks increasingly that the Labour party will win the General Election and that has increased market expectations that Tony Blair will use that momentum to go for an early EU referendum, or at least start campaigning for an early referendum, which will be negative for sterling," Stannard said.